Spanish Bond Yields Where They Should Be: Mark Mobius

Reported by Lisa Oake, Written by Liza Tan

Wednesday, 25 Jul 2012 | 8:14 PM ETCNBC.com

SHARES

Spain’s high government bond yields are right where they should be given the country’s inflation outlook, Mark Mobius, Executive Chairman at Templeton Asset Management's Emerging Markets Group told CNBC on Wednesday.

Yields on benchmark 10-year Spanish government bonds jumped above the alarming 7.5 percent level this week on concerns that Spain may have to seek a financial bailout, rattling financial markets around the world.

Asked whether he remained confident about the outlook for Europe, Mobius replied that he was.

“I think these interest rates are what they should be,” he said, referring to Spanish yields.

“The rates in the U.S. are artificially low…it's not really a market rate and this is true in other parts of the world. Their rates are much too low so savings are being discouraged. So a 6-7 percent rate for a Spanish bond is what it should be because inflation is up at 4-5 percent,” he said.

On the issue of whether Spanish borrowing costs are unsustainable, Mobius said the big question is what Spain should do to tackle its debt crisis.

"Spain should cut spending. If you cut government spending, the economy will go up because there will be enough room for the private sector to thrive," he said.

Mobius expects the European Union to "take three or four years" to resolve its debt issues but is optimistic that the bloc is moving in the right direction.

Still, he added that it could take some time for risk appetite to return to financial markets.

“There's never going to be a turnaround in risk appetite under the current conditions. Why? Because volatility is increasing, global markets have become more and more volatile and they will continue to be and maybe increase the volatility.”

He said derivatives, high-frequency trading, hedge funds and lots of leverage all contributed to the possibility of increased volatility in the markets.

Mobius, who oversees $50 billion in assets, has seen 2 percent growth in net inflows of assets under management since the start of the year.

Upbeat on China

Mobius said he remained optimistic on China, forecasting yearly GDP growth of 7.5 percent or better for the world’s second largest economy.

This is in line with the Chinese government's target of 7.5 percent growth this year.

Annual growth in China’s economy slowed to 7.6 percent in the second quarter of the year, its slackest pace in more than three years. The economy has cooled from double-digit growth rates seen in recent years.

“You can’t expect double-digit growth year after year because the base of the economy is so big, so we can expect high-single digit, maybe mid-single digit growth going forward,” Mobius said.